Will The Fed Destroy The Dollar?

The Federal Reserve’s official target rate of inflation is 2% per year.

Put another way, that means that if the Fed hits its target, the value of today’s dollar will only be worth around a third of its current value in 50 years.

Think that can’t happen? It already has.

Look at the chart below showing the decline in the purchasing power of the US dollar since the creation of the Fed in 1913:

<img class=“aligncenter size-medium” src=“https://peakprosperity.com/wp-content/uploads/2021/09/Rise-and-Fall-of-the-USD-64c2.jpg” alt="“Decline in purchasing power of US dollar” width=“1601” height=“866” />

With the Fed now in “extreme easing” mode, having printed up nearly $3 trillion in thin-air money just this year alone, it’s not a stretch to expect the value of the dollar to decline even more precipitously from here than current estimates predict.

So, in a world where the Fed is considered by many to BE the market, backstopping investors and stepping in at a moments notice to prevent losses, what is the Fed most likely to do from here?

To address this, we recorded this excellent “fly on the wall” discussion between Danielle DiMartino Booth and Axel Merk, both of whom have inside access to the people running the Federal Reserve. In this video, they reveal that they share the same sad conclusion that the Fed really doesn’t have a plan to get out of the mess it’s in (a mess of its own creation) and is pretty much just playing for time, trying to delay the inevitable, painful repercussions of its failed policy.

Which is why now, more than ever, is the time to partner with a financial advisor who understands the nature of the risks in play, can craft an appropriate portfolio strategy for you given your needs, and apply sound risk management protection where appropriate:

Anyone interested in scheduling a free consultation and portfolio review with Mike Preston and John Llodra and their team at New Harbor Financial can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.


This is a companion discussion topic for the original entry at https://peakprosperity.com/will-the-fed-destroy-the-dollar/

If minimum wage is raised commensurate to the percentage of dollars created, the inflation will be blistering. But that won’t happen.
If there are massive crop failures due to global weirding food and beverages will increase but rental prices for homes and apartments will work their way down, as they are based on what the middle and working class can afford–if barely.
As long as the dollar can retain it’s reserve status, it will still be the tallest midget in the room. It’s backed by the strongest military in the world. As oil as backing for the dollar recedes, expect sabre rattling to increase.
A stronger dollar serves two purposes. First, it holds China’s power in check. Secondly, if a country is planning to reindustrialize, boot up its domestic manufacturing sector, for domestic consumption, a stronger dollar is required to purchase commodities from elsewhere to make those products at an affordable cost.
The fed is nothing more than the governing body that oversees capital. All of the nonsense we have seen in the last couple of decades is just indicative of the fed trying to extend credit as a way of offsetting incomes that are stagnant…at best.
They are not the cause of the problem, they have been the bandaid “solution” to the offshoring of decent jobs.

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My existence led by confusion boats Mutiny from stern to bow Ah, but I was so much older then, I'm younger than that now
This is a really tough time for folks near retirement. The brightest value lights (Grant Williams and John Hussman) talk about market valuations. We get it - 3 sigma. Plus. Lots of downside and minimal upside. Got it. Money printing on steroids. Barry Bonds is blushing. Dollar is getting shredded. Got it. Get out of cash into EXPENSIVE real estate, EXPENSIVE bonds, or EXPENSIVE equities. Protect yourself. Got it. Wait - farmland, gold and bitcon is how you protect yourself. Must have been sleeping. Got it. Maybe Tom Petty had it right - stand me up at the gates of hell and I won't back down. https://www.youtube.com/watch?v=sEeY7Kw8mTo Free Falling?
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"Put another way, that means that if the Fed hits its target, the value of today’s dollar will only be worth around a third of its current value in 50 years.

50 years?

'We' have ten years?

“ . . . our best estimate is that the net energy

33:33 per barrel available for the global

33:36 economy was about eight percent

33:38 and that in over the next few years it

33:42 will go down to zero percent

33:44 uh best estimate at the moment is that

33:46 actually the

33:47 per average barrel of sweet crude

33:51 uh we had the zero percent around 2022

33:56 but there are ways and means of

33:58 extending that so to be on the safe side

34:00 here on our diagram

34:02 we say that zero percent is definitely

34:05 around 2030 . . .


34:43 need net energy from oil and [if] it goes

34:46 down to zero

34:48 uh well we have collapsed not just

34:50 collapse of the oil industry

34:52 we have collapsed globally of the global

34:54 industrial civilization this is what we

34:56 are looking at at the moment . . . “


Sorry, @postkey, I’m not buying another “10-years-till-death” prediction. We’ve been getting those at least every presidential election cycle since the first Earth Day, when I was a college sophomore. The world has ended nigh on a dozen times since I graduated, but we’re still here. Garbage in = garbage out. The future ain’t a straight-line projection.
Net oil energy per barrel is not going to zero, although the cost of oil energy is surely going to continue to rise over the long frame, whatever the short-term chop, because it’s harder to find and extract, of lower quality out of the spigot, and subject to increasing regulatory costs.
Yet, the world is not going to reduce energy consumption by much, if at all. More likely we’ll continue to increase our demand and use, even if we stabilize or reduce our population. Solar will contribute to net energy production, probably more effectively in the future than it does now, but even so it’s not the solution. I’m uncertain where future energy supply will come from but I increasingly think we’re going to see the return of nuclear power, provided by the latest technologies (some of which are old, just long sidelined) that all but eliminate radioactive landfills.
How and where we get our energy will surely transition, but the only way the average person’s net energy consumption will decline is if the political class and international cantillionaires go all North Korea on the rest of us and we knuckle under. I don’t see that lasting long: the WEF will fail.
Of course, if the world does end in a decade the rest of the discussion (any discussion) is moot. But in case it doesn’t, we might want a plan B. I, for one, would like to see us find our way back to a hard money standard for one over-riding reason: in a hard-money setting inflation-centered economic policy disappears, and the zombie economy is killed quickly while virtuous economic decision-making and consumption behavior is encouraged.
When the zombie economy is dead, technological advances will promote supply-side deflation. When we live under a supply-side deflationary regime prices go down, and a unit of currency’s purchasing power goes up. When units of currency go up in purchasing power year-over-year, people have a natural (animal spirit) inclination to save today rather than spend, because goods are always cheaper tomorrow than today. In turn, that encourages reduced consumption (good for the planet and all life), the inclination to replace the accumulation of “things” with “experiences,” and the generation of greater wealth across society due to savings and prudent spending. Greater wealth in turn reduces anxiety about the future, producing less frenetic behavior, and a more peaceful society - which leads to a more peaceful world.
An inflationary-economy world naturally incentivizes people to buy today before costs go up tomorrow, which leads to wasteful and excessive consumption, faster resource depletion, increased pollution, and ecological destruction. It also causes anxiety about one’s ability to survive, let alone thrive, in the future.
A deflationary-economy world naturally incentivizes people to reduce consumption (which also leads to demands for well-built products that last decades), to reuse perfectly functional tools and equipment, and to recycle to keep today’s costs down in favor of stronger purchasing power tomorrow. It also promotes confidence about one’s ability to survive and thrive in the future.
Show me the incentive and I’ll show you the behavior. (Charles Munger)

Reflections on the conversation:

  1. Well, if the Fed is giving bond traders advance warning of actions, as Danielle DiMartino Booth alleges began in 1987, thus allowing traders to front-run the Fed, that is all that matters. End of story.
  2. Inflation cannot meaningfully be limited to what shows up in purchase prices. That’s the end of the train. The engine is more dollars made available to chase the same or fewer goods. Without that front end monetary inflation, there’s no price inflation at the caboose end. So pragmatically, inflation is the printing, not the appearance of increased prices.
    Between the engine and the caboose are a number of intervening causes and effects that can influence how consumers experience the effects of money printing. For example, the deflationary impact of things like technological innovation, offshoring, decreased employment opportunities, and increased rates of retirement create spending holes that increasing quantities of dollars have to fill in first, before producing mounds of inflation. The Cantillion Effect, sequestering new dollars in high-value assets (along with those front-run stocks and bonds), delays but likely does not eliminate the inflationary effect on Main Street Jane’s daily budget.
    And, of course, there’s the perennial problem of how inflation is being measured. I have no use for the CPI, that highly manipulated basket of goods that exists more toward the edges of people’s day-to-day living costs than at the center. We experience inflation every week at the grocers, in department stores, and at gas stations; not to forget rent, doctor visits, education (have you looked at the price of a college textbook recently?), and utilities. We buy beef and beans every week, we buy i-phones, computers, and televisions once every 4 or 5 years. The latter don’t offset the former in real life.
  3. The Fed will not be able to run inflation hotter than 2% until something structural changes. What they will do meanwhile is keep trying, and that will continue to inflate the Cantillion Effect, further dividing the 1% from the 99%. Meanwhile, the grotesquely mis-focused, overly-politicized official response to Covid has done nothing for containment of the disease while destroying the American middle class that was already being hollowed out by – among other things – that same disastrous Fed money-printing and enabled front-running, aided and abetted by the extended outsourcing of US manufacturing; all for short-term political and economic gains at the expense of long-term society-wide fiscal health and political stability.
    Now, with the election of Biden, MMT is coming (whatever they choose to call it, the smell of stink doesn’t change). That means even more printing, more central monetary management, and more poverty and dependency for the American people. Until the pitchforks and torches come out.
    And that looks like it will be the end of the story, as far as I can see right now.

I dont believe in the well-intentioned but misguided view of the fed and the elites. I think they are smart people, smarter than me, and they know damn well the consequences of their actions. They are following an agenda. I follow an agenda, my actions follow thoughts and plans. You do too. Why we would assume that the people controlling the world are hapless simpletons who’s actions and consequences are completely detached from their intentions?
Silly. But thats not the point I want to make. I’ve been thinking quite abit about our circumstance, the causes, and the possible solutions. I recently read a timeless book that I would recommend to everyone here called “As a Man Thinketh”. It was written in 1912 and it influenced and entire school of thought. Its a very small book, little more than a pamphlet and its available free online.
The point of the author is that your thoughts have power. We become what we think about most and our entire life is a reflection of our thoughts. ‘The thought is the seed, the action is the sprout, and the result [ whether sweet or sour ] is the fruit’. What we live with everyday is the consequence of our thinking. So thinking and thoughts have power, most people would agree with that. But there is another side to it, which the author dedicates an entire chapter on…ACTION. Thoughts without action have limited value. Likewise, action without thought is not likely to produce much good. Your thoughts are the seeds, the cultivation and care of those seeds must fall to you. Planting seeds in the ground and simply sitting in the shade all season will produce a poor crop.
So what I see are a lot of people talking and thinking and precious few taking the seed to soil. Here the black pilled amongst us chime in “Its a waste of time, Im only one person, becoming resilient/self reliant etc wont change the course of the world”. The philosophy there is that big circles [ government, nations, collective forces ] control the small circles [ family, community, individual ]. And, therefore, without large collective government over-haul, you are wasting your time.
These people have developed a coping strategy to justify doing nothing. This is a 100% guaranteed route to complete failure.
I propose that the aforementioned have got it at least partially backwards…small circles also control big circles. What YOU think and do, influences the world…even the universe. Thought is the seed but it MUST be combined with action. No thought is too small, no action too small to make a difference. Plant a garden. Here thought and action combine to create a powerful effect on your world. Its not just a thing, its a statement, its a movement in a direction the momentum of which will help push everything around you towards a vision.
The elites understand this power and we even have rumors and some evidence of it drifting into occultism. They certainly understand the power of thought as they go through great lengths to influence thought. If they can put an idea into the collective thats a powerful thing…if they can combine some action with the thought [ like having you physically put on a mask ] that carries the thought, strengthens it, and brings it to fruition. Simply telling you that there is a pandemic isnt enough to produce the effect. Getting you to take action, even symbolic action, brings the thing about.
They wield tremendous power with these practices, but you have power too. Couple your thoughts with actions. Do not be black pilled, do not allow negative thoughts or doubts to stop you. Create a clear vision for you life and world. Couple the vision with positive action. However small, it is pushing the forces that shape your world in a direction. Dont just think and post and write and talk. Then you are just throwing out seeds and counting on others to act on them.
Plant a potato. Harvest it. Invite a friend or two over for a meal. You’ve done more to reverse this course than all the talk you could have done in a month. Now Im off to milk my cow, clean the stall, and move some hay. Happy New Year to everyone and may 2021 be the best year of your life!


For this wonderful comment which resonated so well, along with the mention of ‘As a Man Thinketh’, which I have downloaded.
Comments, such as yours here, are why I come to this site. There is a lot to be learned from this diverse tribe. Some things resonate well, others not so much, but without a doubt I find much to ponder as I travel my life journey. I view comments like this as a gold nugget - valuable and something to stack ? After many years here at PP, the stack of meaningful comments & life changing discussions is both large as well as invaluable.
All the best to the tribe for good health, happiness, and whatever means the most to you in what is certain to be an interesting 2021.

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Brushdog’s comment (about people not doing anything) made me think of something else.
A few months ago I read The Subtle Art Of Not Giving A F*CK and while its probably a bit sophomoric for a lot of people here, it made some really good points about entitlement.
Being curious about the world and not listening to people just because they are authorities and being your own person are critical, but there is a fine line between that and slipping into entitlement which is the idea that you somehow get to avoid the discomfort. You somehow get to just live as you like with no changes because you are special.
This is something Ive had to confront in myself a few times (and probably should have many more times). Am I refusing to engage the world in some way because I have principles that the rest of you are too stooopid to understand or am I just being a special snowflake?
All our specific examples are different, but the common element is often entitlement masquerading as some higher purpose.

if I plant a potato, do “I” also plant a potato? (a quantum-nundrum)

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See the article in the NYTimes about countries in Africa not reporting deaths. See if your analysis can reconcile with that reporting. It’s interesting and relevant. I posted it here somewhere.

I dont believe in the well-intentioned but misguided view of the fed and the elites. I think they are smart people, smarter than me, and they know damn well the consequences of their actions. They are following an agenda.
I’m partial to this view. But there is a ‘tragedy of the commons’ effect as well. Just because the elite are smart doesn’t prevent the reality of the Black Swan in this complex world. And like yelling “fire” in a crowded theater, often any plan people have is often going to end badly.
The solution for myself is obvious: shadow the behavior of the elites, but keep a reserve for personal security (what folk here like to call resilience). This method has worked fabulously for 50 years, and I don’t see it changing anytime soon.
Where I do diverge from your “elite agenda rules” thesis is the Fed. People talk like the Fed is some sort of omnipotent superplanner. In truth, they are part of a complex worldwide system and egos, terrified of ZIRP, with little to no control over events. The everything bubble seems mostly driven by demographics and index fund growth via excessive trust in the system that didn’t exist a generation ago. The only solution is to add more fear and bankruptcies, but if they even start here the whole thing may implode. It’s highly unstable, and I believe nobody is in control. But I would like to be wrong.

for anyone looking to download the book As a Man Thinketh by James Allen,
I find the book available for free online on this site:
Book Cover

When a man lively hood is involved he will see whatever his boss at the fed wants him to see. The fed will kill itself because, they are only human.

If you’re looking for a deep dive into the future of the dollar, I highly recommend this lengthy article from Lyn Alden.
“Going forward over the next 3-5 years, I still expect many currencies including the dollar to continue to devalue vs hard assets, and for the dollar to probably be among the weaker major currencies during that timeframe (with occasional counter-rallies against that trend, as is natural).

While it may or may not continue to be, so far this view has been correct. The dollar index is weaker now than it was in October 2019, but it’s still a process playing out. We had a curveball to the outlook from the pandemic in the first half of 2020 that temporarily spiked the dollar, but that merely added massive volatility to the structural forces playing out, rather than changing their direction.

I don’t have a firm opinion about the next 3-6 months, because there are plenty of solvency issues between now and when things might start normalizing in the spring or summer of 2021, and dollar shorts are getting crowded at the moment, but as we look into late 2021 and into 2022, I remain with a dollar bearish outlook.

Taking my view a step further, evidence shows that the global monetary system as currently structured is gradually re-aligning itself, and this fact will have important ramifications for investments over the long run.

This article explores some of those concepts, ranging from the fraying of the existing petrodollar system (for all of its stakeholders, both for US interests and foreign interests), to central bank digital currencies, to a total restructuring of the global monetary system.

It’s inherently a challenging subject, because for decades there have been many unsophisticated calls for a “dollar collapse” always right around the corner that never materialize.

However, this isn’t one of those calls; it’s a quantitative look at the nearly 50-year history of this current global monetary system as structured since the early 1970’s.”
Among other topics, she covers the root flaw of the fiat petrodollar system, where Triffin’s dilemma requires the country with the global fiat reserve currency to gut its industrial base (offshoring to cheaper locations). Let me repeat: this is not an incidental aspect, but a root requirement of having the “privilege” of the global fiat reserve currency. This means several things, all of which show up in the post-1971 US economic history. Equally, I think it outlines with great certainty the future of global macroeconomics to a narrow range of options, all of which mean: the decline of the global role of the US economy; a declined role of the dollar; a shift to multipolar global politics.
The US is not dead, but the decline from global hyperower is inevitable.
As Alden points out, this goes back to the Bretton Woods system, where we had a pseudo-gold standard. The critical problem:
“The United States began running large fiscal deficits and experiencing mildly rising inflation levels, first for the late 1960s domestic programs, and then for the Vietnam War. The United States began to see its gold reserves shrink, as other countries began to doubt the backing of the dollar and therefore redeem dollars for gold instead of comfortably holding dollars.”
My comment:
In 1971, Nixon put us on a complete fiat system. Had we gone to a complete gold standard instead, and slashed government spending, we wouldn’t have Triffin’s dilemma. Gold, a neutral monetary standard, would be the reserve currency for the world, where all international trade and exchange rates would be negotiated in terms of gold. That would have saved the dollar and America’s industrial base.
P.S. In the middle of the article, she addresses in passing the US invasion of Iraq. Hussein had started pricing oil in euros rather than dollars - which would have undermined the petrodollar had other nations followed suit. This is the best explanation I’ve seen for why Iraq was targeted post 9/11.
P.P.S. She doesn’t address this, but the other large factor behind the global currency collapse is the weight of government spending, especially the various forms of welfare. I see the promises of welfare programs as essentially Ponzi schemes, requiring a growing workforce to perpetually throw off funds to support entitlements. As Chris has pointed out in other contexts, a linear system can’t perpetually support exponential growth. As with energy consumption, so with bread and circuses. If politically we can’t cut these programs, the alternative is to crash the currency, whether intentionally or not, whether fast or slow.

The value of a dollar is always determined by what that dollar can buy within the nation that issues it. it is not money printing per se that decreases the value but that the money printed only goes to one class, who can use it to buy up real assets and prevent others from getting those assets. We can’t afford houses anymore, we can’t afford land, and now we can’t even afford to start a small business. This is not because of “money printing” it is because that money is going to an elite class whose rentier economics is strangling productive capitalism and extracting every ounce of skin from the general population. Read anything by Michael Hudson or listen to him explain Rentier Economics here: https://uprootedpalestinians.wordpress.com/2020/12/23/a-hard-look-at-rent-and-rent-seeking-with-michael-hudson-pepe-escobar/ Better include The Deficit Myth by Stephanie Kelton too.

IMO, money printing as practiced these days is in itself the problem, and would be even if it was equally distributed. In fact, it would be a greater problem because those lower on the economic ladder would use more of it on goods and (secondarily) services than those higher on the ladder who don’t need more goods and services and therefore park inflationary dollars in high-value assets where their price-distortion effects are greatly muted compared to what it would be if they fully circulated.
The fact that the baseless printing is mostly parked in the upper echelons exacerbates the inequality problem but isn’t the cause of our economic woes. Kelton is an economic moron, her academic accolades not withstanding. (IMO, they document academic idiocy over-against the practical wisdom of people who run the businesses and work in the industries that provide her privileged lifestyle.)
MMT is the problem. QE is just proto-MMT. Any printing of currency over and above what is needed to reflect the increasing production of an economy causes inflation. This is so basic it’s embarrassing to have to repeat. The point of a dollar is to reflect the real-world work of a particular person; a real human being. It reflects a human being’s time invested in adding to the common wealth; money stores that labor and time investment so that the worker can trade her productive sweat for goods at a later date. As soon as more dollars are printed than properly reflect that core relationship of money to labor, the work of the worker is debased, counterfeited, stolen by whomever gets access to those untethered dollars.
Money = stored time. Money is preserved life energy. Kelton and company don’t understand that, don’t respect it. So, consciously or unintentionally, they steal people’s lives by over-printing. They cheapen the productive sweat people put into labor by dilution, ultimately making that effort worthless to the worker - which reduces those persons to the level of slaves.
MMT is evil dressed in fine intellectual clothing, advocated by a grifter class that benefits from its promotion at the expense of the many who end up with no choice but to work for less than the real market value of their effort. Or revolt.

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I’m amazed at how long the Fed has allowed BTC to run. If they keep it up, BTC and the Fed might be like Uber and the Taxi Drivers Union. It might already be too late for them to squash BTC without an uproar. There are some big money managers and 0.01%-ers that are making meaningful allocations.
BTC has been steeling gold’s lunch. Is it possible that the Fed is happy about that? Remember, the Fed wants gold to be cheap (perhaps so they can keep acquiring more).
I don’t know what’s going on, but I think we should be talking more about BTC.

Passing $30,000 was so… well… yesterday.